Honeywell, Inc. And Integrated Risk Management
Harvard Business School Case No. 9-200-036
Posted: 7 Sep 2001
Date Written: July 12, 2000
The finance committe of Honeywell, Inc. must decide whether to approve a new type of multi-year, multiple-risk insurance contract. This contract bundled Honeywell's traditionally-insurable risks with its foreign-exchange risk using a share deductible. The new contract would be a first step in a firm-wide integrated risk management program that would extend to cover Honeywell's financial and operation risks. The committee's vote would depend upon whether the anticipated cost savings of the program could be realized, and whether the coverage it offered was adequate.
Teaching Purpose: This case is designed to allow students to better understand the specific sources of value that can be created in an integrated risk management program. It focuses on the integration of risks in the firm (both financial and other) and the cost savings that can accrue through this integration. It also allows students to learn how insurance and derivatives, two seemingly different products, are functionally related. The case is taught as part of a module on risk management within Corporate Financial Management, a second-year MBA elective, at Harvard Business School (the risk management module also includes Risk Management at Apache (HBS No. 9-201-113), Jaguar (HBS No. 9-290-005), and Fleetwood Enterprises (HBS No. 293-013) cases, as well as an overview lecture on risk management). It has also been used in an executive education course on corporate financial engineering.
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